TY - JOUR
T1 - The Fiscal Impacts of Trade and Investment Treaties
AU - Dutt, Devika
AU - Gallagher, Kevin P.
N1 - Publisher Copyright:
© 2022 Taylor & Francis Group, LLC.
PY - 2022
Y1 - 2022
N2 - This article examines the extent to which the latest wave of trade and investment treaties has impacted the fiscal stability of the world’s nations. We construct two new measures of trade liberalization based on the importance of a country in the global network of trade and investment treaties, namely the number of trade treaty links and the hub connectedness of a country. This analysis is important since many analyses of the welfare impacts of trade liberalization typically do not consider the impact on the fiscal balances of governments or assume that any loss of tariff revenue would be made up by the imposition of indirect taxes, like a Value Added Tax. Using a cross-country regression analysis, we confirm that trade liberalization has, on average, reduced the amount of tariff revenue collected. Furthermore, trade liberalization is not correlated with an automatic compensation for lost tariff revenue through other taxation measures. We find, in some cases, that trade and investment treaties are correlated with a reduction in total fiscal revenues and an increase in government debt. These results suggest that policymakers need to take the fiscal impacts of trade and investment liberalization into account when making decisions about trade and investment policy.
AB - This article examines the extent to which the latest wave of trade and investment treaties has impacted the fiscal stability of the world’s nations. We construct two new measures of trade liberalization based on the importance of a country in the global network of trade and investment treaties, namely the number of trade treaty links and the hub connectedness of a country. This analysis is important since many analyses of the welfare impacts of trade liberalization typically do not consider the impact on the fiscal balances of governments or assume that any loss of tariff revenue would be made up by the imposition of indirect taxes, like a Value Added Tax. Using a cross-country regression analysis, we confirm that trade liberalization has, on average, reduced the amount of tariff revenue collected. Furthermore, trade liberalization is not correlated with an automatic compensation for lost tariff revenue through other taxation measures. We find, in some cases, that trade and investment treaties are correlated with a reduction in total fiscal revenues and an increase in government debt. These results suggest that policymakers need to take the fiscal impacts of trade and investment liberalization into account when making decisions about trade and investment policy.
KW - Fiscal policy
KW - government debt
KW - tax revenue
KW - trade liberalization
UR - http://www.scopus.com/inward/record.url?scp=85145831827&partnerID=8YFLogxK
U2 - 10.1080/08911916.2022.2145042
DO - 10.1080/08911916.2022.2145042
M3 - Article
AN - SCOPUS:85145831827
SN - 1558-0970
VL - 51
SP - 176
EP - 207
JO - International Journal of Political Economy
JF - International Journal of Political Economy
IS - 3
ER -
